On 12 July 2017, NBU Acting Governor Yakiv Smolii and Deputy Governor Kateryna Rozhkova participated in a working meeting of the Parliamentary Financial Policy and Banking Committee. Adhering to the policy of transparency and publicity, Ms Rozhkova provided details of the audit findings by E&Y accounting firm following an audit of PrivatBank’s financial statements compiled in line with IFRS as of 31 December 2016 and the findings of capital needs assessment. The NBU Deputy Governor said that the capital needs assessment was carried out in n accordance with Article 41-1 of the Law of Ukraine On Households Deposit Guarantee System to assess PrivatBank's financial standing, estimate the bank's capital position and identify its capital needs under the conservative scenario.
“The independent audit findings confirmed reconfirmed the NBU’s previous estimates suggesting Privatbank’s poor financial standing and justified the the state's takeover of the bank to protect over 20 million bank customers and preserve the financial stability in the country. Therefore, such decisions are not subject to revision,” underlined Ms Rozhkova.
Ms Rozhkova presented a summary of the audit findings to the meeting participants. The key audit findings are as follows:
Loan loss provisions and provisions against advances to customers – UAH 184.3 billion, which fully confirms a hole in the bank’s balance sheet when it was nationalized and very poor quality of its assets.
PrivatBank’s negative capital position stood at “minus” UAH 882 million and its regulatory capital amounted to “minus” UAH 2.6 billion. These figures confirm the need for additional capital to be injected into the bank to plug the hole.
Analysis of the bank's loan portfolio shows that loans were issued to finance core businesses linked to the bank’s former shareholders, with none of the bank’s borrowers being large enterprises not related to Privat Group.
The considerable amount of impaired loans – UAH 206.5 billion, of which only a small amount (UAH 14.9 billion) were loans to individuals and SMEs. These figures point to risky lending policies pursued by the bank’s former management team. For comparison: amounts due to households stood at UAH 151.2 billion when the bank was nationalized. Thus, the bank had no funds to repay deposits before nationalization.
Out of UAH 178.4 billion worth corporate loans and UAH 15.3 billion worth financial lease loans only UAH 23.7 billion worth loans were secured by collateral. Due to the lack of collateral borrowers were not interested in repaying loans, making debt collection through the courts extremely difficult.
“The auditor was unable to unearth sufficient evidence to support audit findings about the period when the impairment of loans and advances to customers occurred. For an impartial analysis of the event that occurred during the year, one need to rely on the audit findings for the previous financial year. Therefore, the auditors did not confirm the credibility of PrivaBank’s Annual Report for 2015, which was audited by PwC. Actually, this means that loans could have been impaired both in 2016 and in the previous years.
Ms Rozhkova said that it was beyond the mandate of E&Y to analyze PrivatBank’s insider loans when preparing an audit report on the bank’s financial statements for 2016. The objectives of the forensic audit, which is due to be completed by mid-September 2017, include investigating insider loans issued to PrivatBank’s related parties.
“All the actions of the NBU aimed at defending the state's interests when it comes to PrivatBank’s nationalization, including during the litigation process, are consistent, public, transparent and understandable to the public. The NBU will remain committed to these principles in the future. Claims filed to challenge the bank’s nationalization cannot result in PrivatBank being returned to its former owners as Article 41 of the Law of Ukraine On Households Deposit Guarantee System reads the state as an investor cannot be stripped of the ownership rights on the bank’s shares it has acquired and these shares cannot be repossessed by the former owner,” concluded Ms Rozhkova.